Altura Advisory

We care and appreciated your comment;) - it's just that we are in a different time zone..No questions utilities will fight back and mainly trough pushing new regulation... but there is a Chinese proverb we like when thinking about this: "When the wind of change blows some build walls others build windmills"... And for the long term in countries like America.. we rather invest in building windmills..thanks for your comment

SolarCity - Distributed Energy Generation Is A Great Long-Term Bet, Part I [View article]

Thank you both for your comments.

Agree that utilities eventually will look at this sector and they have a very low financing cost, making them a serious threat. Centralized energy generation will want a pie of distributed energy generation. But that will be also as a possible exit opportunity for current shareholders..

Agree that with time the current business core (installation margins) will likely erode - but we expect to see new revenue streams showing up. Just as it happened with cell phone operators. More on this in our next article.

SolarCity - Distributed Energy Generation Is A Great Long-Term Bet, Part I [View article]

1) We are bullish on SolarCity in the long term assuming a grid parity definition based on the household and commercial electricity bills. This is the decision-making driver in the addressable market.

2) This "overall system grid parity" you mention will be important, as it may imply regulatory changes in the long-term. Still our view is that we are really very far from there in the US. In October 2012 solar had only 0,29% of total installed capacity... Even with the current very high growth rates it will take a long time to achieve significant penetrations for the system... And by then, one must believe that batteries will be so much better..

SolarCity - Distributed Energy Generation Is A Great Long-Term Bet, Part I [View article]

SolarCity - Distributed Energy Generation Is A Great Long-Term Bet, Part I [View article]

Your point is valid. Assuming that the power centrally generated is less used, then the overall system cost (including lines and base load plants) will have to go up for everyone. Still our view is that centrally generated power plants and distribution lines are normally well amortized infrastructures (despite some new gas-fired plants investments).. so we don't expect the effect you mention will change the overall grid parity close-in for solar.

Still if you know about some data sources on that specific effect, we would love to have a look. thank you for your interest in our article

SolarCity - Distributed Energy Generation Is A Great Long-Term Bet, Part I [View article]

1) True that solar in the US is subsidized - trough the current tax credits for solar investments. But the federal government also incentivized drilling in shale via the Section 29 tax credit for unconventional gas from 1980-2000... and still today there are many subsidies to fossil fuel production. Solar does not have a preferential treatment compared to other energy resources.

2) True that distributed generation is not grid independent. At least until electricity storage solutions are developed. But that in our view will not prevent decentralized generation growth.

3) Who pays the cost of the grid and of available capacity for instance from gas-fired power plants? In theory that cost is paid in the baseline allowance of consumer's monthly bills (the "fixed" part, not related to consumption). At least this is the most common regulatory approach. Being that the case, then when someone installs a solar panel, the baseline usage will be reduced, but there will be no cost reduction in that fixed component that pays for the infrastructure costs.. So overall we don't see the cross-subsidy you mention between technologies (but this may indeed happen in some US states, depends on power prices regulation).

Regarding risk #7 - Experts predict the solar panel installation prices will continue to decrease. An investment tax credit of 10% in 2017 may end up being better for SolarCity business model than 30% now.

Regarding risk #8 - Experts predict the solar panel installation prices will continue to decrease. Nobody questions that, the only big if is the % of decrease going forward. And as the solar panel prices go down, the potential market of solar panels increases significantly. It is not impossible that by 2017 they will be able to offer bellow grid parity almost everywhere in the US. Even not considering power price increases